There are a lot of factors that go into buying a home. It is important to understand what happens when an appraisal value comes up short and how it can affect you. Before we dive into what happens when an appraisal value comes up short, let’s discuss what a bank appraisal is.
When you get a bank appraisal, it is the unbiased estimate of the value of a home that gets conducted by a third party appraiser. Lenders go through the process of getting an appraisal to ensure that they know that the home is worth what you are paying it for. It is important for lenders to do this so that they can make calculated approaches to lending. If the market value is lower than the agreed upon sales price and the buyer defaults on the mortgage, then the lender may have issues selling the property for enough money to recover their investment. If the appraisal does come in low, then lenders will only lend on the appraised value and not the full purchase price.
An appraisal is not always needed, as it is typically for purchasers that are low ratio that have uninsured mortgages, or in other words, putting 20% or more down payment towards their home purchase. If your down payment exceeds your loan amount, or you are insured by CMHC, then you will likely not need an appraisal.
An appraisal is usually hired by the lender but paid by the buyer, with an approximate value of $350-500.
Overall, a bank appraisal is a critical step for both the home buyer and the home seller. For a buyer, an appraisal is often a requirement to obtain a mortgage. These therefore affect the seller as well, as it determines whether or not the buyer will be able to remove subjects on your home.
Now that we have talked about what a bank appraisal is, let’s discuss what happens if an appraisal comes in low.
Bank appraisals are not always a smooth process as sometimes the appraiser finds the value of the home is less than what the buyer agreed to pay, based on their market comparisons and assessment of the home and property. In this case the lender may only fund up to the appraisal value and ask the buyer to fund the difference, or in other words increase their down payment. For some buyers this could be a difference of being able to buy the home or not being able to buy the home.
There are a few options you can take if you find the appraisal puts a lower value on your home.
- Dispute the Appraisal: Your mortgage broker could argue the appraisal and give different comparables or explanations. The appraiser may take in these comments and adjust the numbers.
- Get a second opinion: You could buy another appraisal and see if they bring in a different opinion to change the value of the home in the eyes of the lender.
- Come up with the money and fund the difference: Borrow the funds or increase your down payment.
It is important to note that a low appraisal value is not necessarily going to kill the deal. When looking at an appraisal value that comes up short, it is not always the best idea to ask for a second opinion. Likely the best chance is being able to have a discussion with the appraiser to discuss comparables and other note-worthy items to see if there can be any movement in the final report of the house’s value.
Overall, it is important to note that an appraisal is a part of the buying process. We want to make sure that you are always equipped to handle every sudden turn that comes in the buying process. Please make sure you work with a GLM Mortgage Broker to get the best results.